Working Capital Calculator
Working capital measures a business's short-term financial health by comparing current assets to current liabilities. It reflects the resources available to fund daily operations, purchase inventory, pay suppliers, and respond to unexpected opportunities.
Use this working capital calculator to quickly calculate your company's working capital position. Whether you're monitoring liquidity, planning for growth, or evaluating financial performance, understanding working capital helps you make better operating decisions.
Calculate working capital
What is working capital?
Working capital is the amount of cash tied up in the operating cycle of a business. In simple terms, it shows how much money is sitting in receivables and inventory, net of what the business owes suppliers.
A business can be profitable on paper and still feel cash-starved if too much capital is trapped in slow receivables, excess inventory, or poor payment timing.
How do you calculate working capital?
Working capital is calculated by subtracting current liabilities from current assets.
Current Assets − Current Liabilities = Working Capital
Why is working capital important?
Working capital helps businesses maintain liquidity, pay suppliers, purchase inventory, and meet payroll without relying on additional financing. Healthy working capital also provides flexibility during slower sales periods or unexpected expenses.
What are current assets?
Current assets are resources expected to be converted into cash within one year. They commonly include cash, accounts receivable, inventory, and short-term investments.
What are current liabilities?
Current liabilities are obligations due within one year, including accounts payable, accrued expenses, taxes payable, payroll liabilities, and the current portion of long-term debt.
Can working capital be negative?
Yes. Negative working capital occurs when current liabilities exceed current assets. While this can indicate financial stress, some businesses with rapid inventory turnover or strong supplier financing intentionally operate with negative working capital.
What's the difference between working capital and cash flow?
Working capital measures your financial position at a specific point in time, while cash flow measures the movement of cash into and out of the business over a period of time. A company can have positive working capital but poor cash flow—or vice versa.
How can a business improve working capital?
Businesses can improve working capital by collecting receivables more quickly, reducing excess inventory, negotiating longer payment terms with suppliers, increasing profitability, or reducing short-term debt.
Formulas
- Net Working Capital = Accounts Receivable + Inventory − Accounts Payable
- Operating Assets = Accounts Receivable + Inventory
- Days Sales Outstanding = Accounts Receivable ÷ Daily Revenue
- Days Inventory Outstanding = Inventory ÷ Daily COGS
- Days Payable Outstanding = Accounts Payable ÷ Daily COGS
- Cash Conversion Cycle = DSO + DIO − DPO
Example
Assume a business has $125,000 in receivables, $175,000 in inventory, and $85,000 in payables.
Net working capital is $215,000. That means $215,000 of cash is effectively tied up in the operating cycle before considering cash already sitting in the bank.
For an owner-operator, this matters because growth often consumes cash before it produces cash. More sales may require more inventory, more labor, and more receivables before the money is actually collected.
Common mistakes
- Assuming profit and cash flow are the same thing.
- Growing revenue without estimating the cash required to support growth.
- Letting receivables stretch while still paying suppliers quickly.
- Buying inventory too far ahead of demand.
- Ignoring the cash conversion cycle when evaluating acquisitions.
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